New York Rangers: Explaining how buyouts work

As the New York Rangers’ organization looks to make more moves to improve this summer, it could potentially buyout a bad contract of one of its players. A favorite tool of any armchair general manager, how does the buyout work?

In most cases, life doesn’t have a do-over button or an eraser. Blow a negotiation at work that your company has to live with for years to come? You’ll hear about it until you retire or leave the job. However, the sports world is littered with non-real world solutions to mistakes. The New York Rangers could do worse than breaking out a magic eraser on its books.

Now, anytime someone vilifies a player for being overpaid, they’re letting ownership get away with a mistake. It’s not the player’s fault that an organization was willing to go above the market price to procure their talent. In many cases, it’s a situation in which a player is getting compensated for their performance in the past instead of their production over the life of the contract.

While the Rangers’ books are in pretty good shape relatively speaking. The team will have around $20 million in cap space for this upcoming summer before it deals with any of the five restricted free agents that need to be signed. When all is said and done, New York should have somewhere between $10-13 million to work with come July 1st.

Many around the league expect the Rangers to be extremely active in free agency and on the trade market. This flurry of activity will require more financial flexibility, especially if the front office has multiple moves in mind. While a trade to alleviate salary is possible, the buyout is another tool in a general manager’s toolbox and it doesn’t require a willing partner.

The logistics

So, you’re an NHL G.M. that signed a player to a contract that you regret. There are two types of buyouts at your disposal, the compliance and the ordinary course buyouts. The former is a result of the 2012-2013 lockout-shortened season, in which teams were given two compliance buyouts. These were buyouts that a team could use that did not count against the salary cap.

However, the Rangers already used both of their compliance buyouts several years ago. Both Wade Redden and Brad Richards were bought out of bad free agent contracts to free up space while the team was still a contender. This leaves New York with only the ordinary course variation of the buyout.

To calculate the amount of a player’s salary that will count against the salary cap, the following formula is used according to capfriendly.com.

Multiply the remaining salary (excluding signing bonuses) by the buyout amount (as determined by age) to obtain the total buyout costSpread the total buyout cost evenly over twice the remaining contract yearsDetermine the savings by subtracting the annual buyout cost from Step 2. by the players salary (excluding signing bonuses)Determine the remaining caphit by subtracting the savings from Step 3. by the players Annual Average Salary (AAV) (including signing bonuses)

In the interest of fairness, I won’t levy who the Rangers should buyout here if they wanted to. Instead, we’ll go to capfriendly.com’s most common buyout calculator for an example.

The single most common buyout users have calculated is Milan Lucic of the Edmonton Oilers. The winger has four years remaining on his deal at $6 million per. The former Boston Bruin’s play has dipped over time as the miles caught up to his physical style of play and is a prime candidate for a buyout.

If Edmonton were to buyout Lucic, it’d cost the Oilers $3.625 million in year one, $5.625 million in year two, $4.125 million in year three and $5.625 million in year four. After that, the Oilers would have $625,000 against the cap until the end of the 2026-2027 season as a reminder of Lucic’s tenure.

So, in theory, the Rangers would be able to alleviate some immediate financial stress through the buyout. But, it would also have an added impact at a time when the front office could be trying to fine tune a contender and need every last dollar of cap space. While making a mistake go away right now might seem favorable, it could, in fact, be disadvantageous at a more important moment.

The Rangers’ front office has the luxury of choice this summer, whether or not to buy out a player to make cap space is certainly within the realm of possibility.